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Chinese firm sues Venezuela as crisis tests ally's patience

CARACAS, Venezuela – One of China’s biggest state-run conglomerates has sued a Venezuelan counterpart in a U.S. court in a dispute over unpaid bills, a sign of Beijing’s growing impatience with its socialist South American ally as it slides into bankruptcy.

In the lawsuit filed Nov. 27 in a Houston federal court, a U.S. subsidiary of Sinopec sought more than $23 million in damages from Venezuela’s state-run oil company, PDVSA. Sinopec alleges it never received full payment for 45,000 tons of steel rebar it agreed to sell PDVSA for $43 million and which was delivered in 2013.

The lawsuit, while small in size, says PDVSA through its U.S. subsidiary Bariven reneged on repeated promises to pay Sinopec, at one point costing the Chinese company $2 million in losses after it entered into arbitration with a supplier it agreed to purchase the steel from to carry out the deal.

“This is not simply a case of a broken promise to pay,” Sinopec said in the court documents, accusing PDVSA of “deceit” and “wilful deception” in its refusal to pay its bills. “Rather, this case involves a complex commercial transaction specifically calculated to leave Sinopec without a remedy.”

The Chinese “usually take a more diplomatic tone” and are clearly angry, Russ Dallen, head of local brokerage Caracas Capital, wrote in a report Wednesday in which he revealed the existence of the lawsuit.

The dispute comes as Venezuela is seeking fresh financing to restructure its huge foreign debt on which it is behind payment.

China has been one of Venezuela’s biggest creditors, providing it loans, cash and investment totalling more than $65 billion between 2007 and 2016, according to a database maintained by Boston University and the Inter-American Dialogue. But it has so far failed to come to President Nicolas Maduro’s rescue as he tries to shield the OPEC nation from triple-digit inflation, fast-declining oil production and financial sanctions imposed by the Trump administration.

A spokesman for Beijing-based Sinopec Group confirmed that a U.S. subsidiary of a Sinopec trading company had launched a lawsuit against PDVSA about “a dispute over payment owed.”

“As a big company, it is normal for us to have such commercial dispute and it is normal to resort to law if there is a dispute,” Sinopec spokesman Lu Dapeng said by phone.

Geng Shuang, a spokesman of China’s Foreign Ministry, said the issue was nothing more than a regular commercial dispute and that China remains willing to co-operate with Venezuela on an equal and mutually beneficial basis.

“I think this is a common commercial dispute and there is no need to make over-interpretations of it,” Geng said. “I want to stress that China attaches great importance to the development of China Venezuela relations.”